AT40 = 17.3% of stocks are trading above their respective 40-day moving averages (DMAs) – 10th day of oversold period following 4-day oversold period
AT200 = 29.5% of stocks are trading above their respective 200DMAs
VIX = 23.4
Short-term Trading Call: bullish

Commentary
The small bullish divergence to start the week received follow-through in the form of a big rally day in the stock market. AT40 (T2108), the percentage of stocks trading above their respective 40-day moving averages (DMAs), jumped from 11.9% to 17.3%. Suddenly, it looks possible for the stock market to bring an end this week to this extremely extended oversold period (AT40 above 20%). AT200 (T2107), the percentage of stocks trading above their respective 200DMAs, came to life by hopping from 25.4% to 29.5%. AT200 even slightly broke through its steep downtrend.

AT40 (T2108) surged from the lows to the oversold threshold.

AT200 (T2107) bounced enough to sneak a peak above its relentless October downtrend.

So far, the S&P 500 (SPY) is down 4.5% for this 10-day old oversold period. The index is down 3.7% from the start of the first oversold period which is only separated from the current period by one trading day. If the oversold period had ended today, the S&P 500’s performance would have been in-line with historic 14-day long oversold periods and under-performed historic 10-day oversold periods. In both cases projections are for less weakness.

The performance of the S&P 500 for a given oversold duration (T2108 below 20%).

In other words, there is a decent case to be made that the breakout from this oversold period will come with another big rally day for the S&P 500. It will need to be a big move to break out of the current steep downward trading channel formed by the lower Bollinger Bands (BBs).

The S&P 500 (SPY) rallied for a 1.6% gain that perfectly matched the previous day’s open and close lower.

The NASDAQ gained the same percentage as the S&P 500 but its range of motion was not nearly enough to nullify the previous day’s fade and selling. The Invesco QQQ Trust (QQQ) gained 1.7% but also failed to nullify the previous day’s pressure.

The NASDAQ rallied for a 1.6% gain but still sits well within the downward trading channel formed by the lower Bollinger Bands (BBs).

The Invesco QQQ Trust (QQQ) rallied 1.7% but still sits within a steep downward trading channel.

The volatility index, the VIX, only fell 5.5% and closed at 23.4. It is still at elevated levels (above 20) so the stock market remains very vulnerable to wide swings and sharp selling, but at least the intraday high did not reach the recent highs.